Blue Sky confidence parts capital clouds over Alcidion

The private equity arm of recently listed
Blue Sky Alternative Investments
is on the prowl.

In February the company inked a deal for a $2.6 million minority stake in Adelaide health informatics business, Alcidion. Within the next year, the fund’s managing director, Tim Wilson, wants to make three investments of between $3 million and $10 million in innovative small and medium companies.

“We like to back businesses that are driven by structural change in an industry, which throws up an opportunity . . . which is absolutely the case in Alcidion," Wilson says.

The company’s intention comes at a time when debt finance is perceived to be in short supply. Analysis of bank lending around the world by accountancy network UHY Haines Norton shows that the number of loans to Australian businesses over the past three years have fallen by 6 per cent to $US651,152 million in 2011.

In contrast, the number of loans to businesses in G8 countries dropped by 4 per cent on average while, in BRIC nations, (Brazil, Russia, India and China) loans increased by 68 per cent, in the same period.

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The chairman of UHY in Australia and New Zealand, David Tomasi, emphasises the fall is not simply due to banks lending less. “It’s reflective of a loss of confidence, not just for lenders, but also for businesses and borrowers," he says.

Banks might be tightening their lending, but businesses also do not want to extend too far in difficult economic times, Tomasi says. For companies looking to fund growth, he says, giving away equity can be a “good approach".

The chief executive of Alcidion, Ray Blight, says he considered a bank loan before dealing with Blue Sky. “But we found that the cost and the conditions [for a loan] were really very high for a small company that has invested all of its earnings back into organic growth," he says.

Added to that, Blight needed about $3 million in capital, but the banks were willing to lend only $1 million. “Banks tend to look at businesses in terms of existing revenue," he says. “We’re not manufacturing a product. The value in this company is in its intellectual property."

Blight set up Alcidion in 2000. The company has developed a technology platform, “Miya", for use in healthcare that assists medicos in clinical decision-making. Miya is a touch screen that integrates patient assessment, history and diagnostic information, and warns doctors and nurses of clinical risks.

The capital will be used to expand globally. The plan is to integrate Miya into existing health technology companies’ product sets. “It is very important that we get to the rest of the world very quickly," Blight says.

The company has turnover of “under $5 million". Blight says, in choosing an equity partner, Alcidion wanted corporate discipline and he advises other SMEs to be “clear about what you require in a partner".

“View your financier as a strategic and important operational input into your business," Blight says.

The goal is to reach a “second major liquidity event" within three to four years. Blight says it is likely to be a trade sale, not a listing. Whatever the case, it will fit in with Blue Sky’s plans. “Let’s hope that things are going to be better in five years when we’re going to exit these [companies]," Wilson says.